HMRC refunds £1.8m child benefit tax penalties

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HMRC has made £1.8m in refunds to nearly 5,000 taxpayers as a result of cancelling ‘failure to notify’ penalties in high income child benefit charge (HICBC) cases, on the grounds they had a reasonable excuse.

The raft of cases related to higher rate taxpayers who had not informed the tax authority that they would opt out of child benefits as they earned over £50,000 after complicated changes to child benefit payments introduced by former Chancellor George Osborne from 2013.

The lack of awareness about the complexities of HICBC was also highlighted in the latest research into the rollout of the changes to child benefit with criticisms about the poor communications from HMRC and the tone of penalty demands.

Last year HMRC was forced to review thousands of cases where a ‘failure to notify’ penalty was issued for the tax years 2013/14, 2014/15, and 2015/16, to taxpayers who had not registered for the HICBC. It also reassessed its interpretation of what constituted a ‘reasonable excuse’.

It looked at 35,000 cases and cancelled the penalties of over 6,000 taxpayers who had a reasonable excuse for not notifying their liability for those tax years with parents receiving an average refund of £370.

Refunds have been sent to families that claimed child benefit before HICBC was introduced, and where one partner’s income subsequently increased to over £50,000, and to families where the liability to HICBC arose in the 2013/14, 2014/15, or 2015/16 tax years as a result of the formation of a new partnership.

In total, £1.8m of refunds were made in 4,885 cases. Payments have already gone out and HMRC says there is no need for taxpayers to contact them. Despite the record refunds, it is not clear that the fundamental problem has been resolved as the system is still complicated and awareness levels are low.